Ref No HC05C03931
Royal Courts of Justice
The Strand
London
WC2A 2LL
B e f o r e:
SIR ANDREW PARK
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B E T W E E N:
LEONARD CURTIS & Co (A Firm)
Claimant
- v -
MICHAEL BENJAMIN
Defendant
_____________________________
Tape Transcription by John Larking Verbatim Reporters
Suite 91 Temple Chambers,
3 - 7 Temple Avenue, London EC4Y OHP
Telephone 020 7404 7464
____________________
MR S ADAIR (instructed by CSI)
appeared on behalf of THE CLAIMANT
THE DEFENDANT appeared in person
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J U D G M E N T
SIR ANDREW PARK:
Introduction and Overview
This claim is brought by Leonard Curtis & Co, a firm of chartered accountants and insolvency practitioners. There are, I believe, at present three partners: Mr Goodman, who is the senior partner and also the managing partner; Mr Bennett; and Mr Schapira. At the times which have given rise to the case there was a fourth partner, Mr Steven Swaden. Mr Swaden died in May 2007. The firm's offices are in Central London.
The defendant is Mr Michael Benjamin, who is a self-employed book-keeper. Over a period of two-and-three-quarter years from October 2002 to July 2005 Mr Benjamin was retained by the firm to maintain its accounting records and to deal with the payment of its suppliers. The firm's case is that in July 2005 the partners discovered that Mr Benjamin, as well as being paid the fees to which he was entitled under the terms of his engagement, had engineered matters so that he was receiving substantial additional sums from the firm as well. The firm says that Mr Benjamin was perpetrating frauds against it, and it brings this case against him to recover what it asserts to be the proceeds of the frauds.
The firm says that there were three different fraudulent techniques which Mr Benjamin adopted. I will expand on them later. At this stage I simply say that the firm has labelled them for the purposes of this case as the "Autopay fraud", the "professional fees fraud" and the "overcharging fraud". The firm contends that the proceeds to Mr Benjamin of the three frauds were as follows: the Autopay fraud, £78,000; the professional fees fraud, £29,400; the overcharging fraud, £13,200. The total is £120,600, and the firm seeks recovery of that sum together with interest, or possibly alternative means of recovery.
Mr Benjamin accepts that he received the amounts of £78,000 and £29,400 which the firm contends to have arisen from the Autopay fraud and the professional fees fraud, but he says that there was no fraud involved in either respect. He says that he received the amounts with the knowledge and consent of the partners.
With respect to the overcharging fraud, the firm's complaint is that, although Mr Benjamin was entitled to invoice it for the time he devoted to its affairs, the invoices he in fact delivered and for which he received payment were fraudulently inflated in the sense that they charged the firm for more time than he had spent. Mr Benjamin says that there was no overcharging. All the hours for which he claimed payment by his invoices were hours which he did spend on the firm's affairs.
For the reasons which I will explain as this judgment progresses, I accept the firm's contentions as respects the Autopay fraud and the professional fees fraud. I think that the firm may also be right as respects the overcharging fraud, but I remain in doubt about that relatively small part of the firm's entire claim, and I have concluded that my doubts are sufficient to mean that I should not give judgment for the firm upon it.
The result so far is that the firm's claim against Mr Benjamin succeeds to the extent of £107,600. However, there is the possibility of further issues arising in connection with the remedies that the firm claims. It has advanced a tracing argument in its particulars of claim. The tracing argument could lead to the firm asserting some sort of proprietary interest in Mr Benjamin's house. I will not be dealing with the tracing argument in this judgment, but I will return briefly to the point before I conclude.
I should record that Mr Stuart Adair appeared for the firm. Mr Benjamin was represented by solicitors when the claim was first brought against him, but by the time that the case came before me he appeared in person. Mr Adair and I did the best we could to help him put his case and in particular to ensure that, if he challenged any elements of the evidence of the partners, the challenges were put to the partners. This also meant that the partners had the opportunity to comment in oral evidence on respects in which Mr Benjamin was disputing the points in the witness statements which they prepared some time ago and which had been served on the firm's behalf.
The facts in more detail
Until October 2002 the firm had had the services of a Mrs Kingsman as a self-employed part-time book-keeper. She was expected to work for the firm for approximately two days a week. She was paid fees at the rate of £25 per hour. She invoiced the firm for her time. Her invoices appear to have been for sums of between £2,000 and £2,500 a month. That indicates monthly hours worked by her of between 80 and 100 hours.
Mrs Kingsman proposed to cease her engagement with the firm in October 2002, so the firm needed to replace her. Mr Benjamin was known to Mrs Nicky Mitchell, the firm's practice manager, and she introduced him to the partners. He was engaged by the firm to replace Mrs Kingsman. The firm's case is that the terms were the same for him as for her. It was expected that he would work about two days a week on the firm's affairs. He would charge £25 per hour and he would invoice the firm for his fees from time to time. In practice that meant monthly. As far as I know, the agreement was made orally. At any rate I was not shown any written agreement. As far as I can see there is no such agreement in the volumes of documents.
Mr Benjamin says that there was a supplemental oral agreement that, if his fees calculated at £25 per hour for hours worked by him aggregated to less than £6,000 a month, he would receive further payments to bring his total up to "approximately" £6,000 a month. I will return to this later.
Mr Benjamin did indeed provide his book-keeping services to the firm for two-and-a-half years. He provided monthly invoices for his fees. He prepared them himself, entirely appropriately, given his role and functions. He also prepared cheques in the invoiced amounts for signature by a partner. His invoices tended over the whole period to be rather higher than Mrs Kingsman's invoices had been. This is the basis of the alleged overcharging fraud. Apart from the overcharging allegation that Mr Benjamin invoiced the firm for too many hours, it is accepted that the submission by him of monthly invoices and the payment to him of the invoiced amounts was in accordance with the agreement or arrangement which had been reached between him and the firm.
However, it is now clear that Mr Benjamin, as well as receiving from the firm the amounts for which he invoiced it, was receiving other amounts as well: some of them by the mechanism which is alleged to have constituted the Autopay fraud and which I will explain later; others of them by the mechanism which is alleged to have constituted the professional fees fraud, and which I will also explain later.
In August 2005 Mr Goodman (the senior partner and managing partner) was telephoned by a police officer. The officer told him that Mr Benjamin had been charged at Blackfriars Crown Court with, and had pleaded guilty to, offences of false accounting relating to work which Mr Benjamin had done for another of his clients. I believe that there was another offence charged to which Mr Benjamin had pleaded not guilty. I am not sure what the outcome of that plea was. However, the relevant point for present purposes is that Mr Benjamin had pleaded guilty to some charges of false accounting. The police informed Mr Goodman that they had noticed that a large number of payments from the claimant firm, Leonard Curtis & Co, had gone into Mr Benjamin's bank account.
Mr Goodman testifies that he and his partners were shocked by this news. Previously they had trusted Mr Benjamin and had not had any suspicions about him. Mr Goodman then investigated the firm's accounts and records and he says that it was by reason of his investigation that he discovered the facts which underlie what he and the firm contend to have been the Autopay fraud and the professional fees fraud. This is the stage in my judgment when it is appropriate to describe those matters.
The Autopay System
The Autopay system is a system operated by NatWest Bank to facilitate monthly payments by account holders to their regular suppliers. The system is described by Mr Goodman in his witness statement at paragraph 9. There is no dispute about it. He says:
"The Autopay system operates in the following way:
(1)A list of Autopay beneficiaries is prepared and from time to time updated by the bank's customer. As previously stated, these beneficiaries tend to be our regular suppliers of things like stationery. The list includes the sort code and bank account number of each of the beneficiaries.
(2)On receipt of the list of beneficiaries the bank allocates each of the beneficiaries an Autopay reference number. This Autopay reference number is thereafter used to identify the beneficiary to the bank.
(3)Every month the customer prepares a list of the beneficiaries to be paid through the Autopay system by listing their Autopay reference numbers and the sum to be paid to each of the beneficiaries on one of the bank's Autopay payment input forms.
(4)On receipt of the list of beneficiaries to be paid the bank effects payment by transferring funds into the beneficiaries' bank accounts."
Mr Goodman goes on to say that, in or around March 2003, Mr Benjamin caused his own name to be added to the list of Autopay beneficiaries. The example of a list which Mr Goodman exhibits to his witness statement has 78 names on it. Mr Benjamin is one of them. I do not think that the inclusion by Mr Benjamin of his own name in the list is in itself out of the ordinary or suspicious. Mr Benjamin, after all, was a regular supplier to the firm: he supplied his book-keeping services. Nevertheless Mr Benjamin did not cause his monthly invoice fees to be paid to him through the Autopay system. They were paid to him by cheque, as I will soon describe.
I return to Mr Goodman's witness statement, to quote his description of how the Autopay system was used as a mechanism for payments to be made to Mr Benjamin:
"Mr Benjamin included his own Autopay reference number in the Autopay input forms that he prepared every month from April 2003 to April 2005. Having prepared these forms, Mr Benjamin would present them to a partner for his signature to authorise payment. At pages 3-4 is an example of an Autopay input form which was completed by Mr Benjamin to include his own details and authorised a payment to himself of £2,000. As previously stated, these forms did not include the names of any of the beneficiaries (merely the reference number and sum to be paid) and the partner asked to sign the form would not know who the beneficiaries of the various payments were without obtaining a separate list of Autopay beneficiaries. The partners in my firm are generally very busy people and human nature being what it is, no one ever carried out this check."
It is an admitted fact that, every month between April 2003 and April 2005, an Autopay payment was made by the firm to Mr Benjamin. The total of these payments was £78,000, which is the amount at which the firm quantifies the Autopay fraud.
The Professional Fees Fraud
I have already said that every month Mr Benjamin prepared an invoice for the amount of fee he claimed for the month, and that he also prepared a cheque drawn on the firm's account for that amount. He presented the invoice and the cheque to a partner and the partner signed the cheque. Apart from the firm's allegation that the invoices were inflated and gave rise to overcharges, the system of invoices and cheques to be signed by a partner was entirely appropriate. However (and this is the key point about the professional fees fraud), in twelve of the 25 months between January 2003 and February 2005, Mr Benjamin obtained not one cheque for the invoiced amount but two. Mr Goodman says the following in his witness statement at paragraph 15:
"From January 2003 onwards, in addition to obtaining payment of his professional fees in the manner described above, Mr Benjamin would regularly present the same invoice and a second cheque drawn in his favour to another partner and ask that partner to sign the cheque. As previously stated, Mr Benjamin was trusted by all the partners in the firm and Mr Benjamin obtained this trust in obtaining double the sum to which he was actually entitled."
The word "regularly" in that quotation is not quite right because over 25 months Mr Benjamin received second cheques in twelve months, not in all 25. The aggregate of the second cheques is £29,400. That is the firm's quantification of the professional fees fraud.
Another part of the firm's case in support its contention that the Autopay payments and the double cheque payments were fraudulently procured by Mr Benjamin is that he (Mr Benjamin) maintained the books and records of the firm in a way which concealed both the Autopay payments to him and the second duplicated cheques to him, or at least in a way which concealed them from everyone except a diligent and suspicious enquirer. I will give a few more details about the alleged concealment.
There was a Sage computerised accounting system. I was not given any details of it or supplied with any print-outs of its contents, but Mr Goodman, who, after he had been contacted by the police, became a diligent and suspicious enquirer, says this at paragraph 21:
"My investigations into the activities of Mr Benjamin have revealed that he concealed the sums he fraudulently obtained from us as follows:
in the Sage accounts by writing the amounts off as irrecoverable disbursements ...."
This reference to the amounts to being written off as "irrecoverable disbursements" was not enlarged on to any appreciable extent, but I take it to mean that the Sage accounts did show that the £78,000 in aggregate of Autopay payments and the £29,400 in aggregate of double cheque payments had been disbursed by the firm, but did not show in an immediately obvious way that they had been disbursed to Mr Benjamin.
In addition to the Sage computerised system, the firm maintained a manually-written-up cashbook. One of Mr Benjamin's responsibilities was to write up the cashbook. Mr Goodman says that the Autopay payments and the double cheque payments to Mr Benjamin were concealed in the cashbook in one way or another. One way was for the individual payments to Mr Benjamin not to be listed at all, but rather to be omitted from the point in the cashbook where one might have expected to find them. However, when columns of figures for payments made in a month were totalled, the sum given for the total was not the addition of all the payments that had been listed. The total was greater than the sum of the listed items by the amount which had been paid to Mr Benjamin but which had been omitted from the list. The other way in which payments may have been concealed was by recording in the cashbook an amount of a payment which was in fact paid to Mr Benjamin, but wrongly describing it as something else, for example as a drawing by one of the partners.
I was taken through these aspects of the cashbook in some detail, and so was Mr Benjamin in his cross-examination. I am satisfied that the payments were concealed, as Mr Goodman asserts they were in his witness statement. I am also satisfied that it was done deliberately. In cross-examination Mr Benjamin said that in one or two cases there had just been inadvertent slips. He also said that as long as a total figure for a month was correct, it did not matter that the total was not equal to the sum of the individual listed entries of payments which had been made in the month. I must conclude that Mr Benjamin's evidence to those effects was ingenuous and I cannot, I regret, accept it.
As I have said, Mr Goodman made his investigations after being contacted by the police. He discovered about the Autopay payments and double cheque payments which had been made to Mr Benjamin. Mr Benjamin, if I understand him correctly, would say that the truth is that Mr Goodman knew all about the payments all along. In my judgment, however, he did not.
On 25 August 2005 Mr Goodman called Mr Benjamin into his office to confront him with the discoveries. Mrs Mitchell (the practice manager) was also in the office at the time. She made a note of the meeting. The note is not a verbatim shorthand note. Rather it is in the form of brief jottings of words which encapsulated what was said. Within half an hour Mrs Mitchell had typed up her manuscript note in slightly expanded form. She said, and I have no difficulty in accepting, that when she typed up the note from her manuscript she still had a clear memory of what had been said within the last hour. On the basis of her note and of oral evidence about the meeting, both from Mrs Mitchell and Mr Goodman, I am satisfied that on that occasion Mr Benjamin admitted (or at the very least did not attempt to deny) the Autopay fraud and the professional fees fraud, though he did deny overcharging. I will not quote the note in full, but I will quote some significant extracts:
"KDG [Mr Goodman]: Why? [Mr Goodman asked Mr Benjamin why he had done what he had]
MB [Mr Benjamin]: Fool/stupid.
....
KDG: You duplicated invoices, Autopay, cheques.
MB: Yes.
....
KDG: It is a complete breach of trust.
MB: I know. It was false accounting because I was desperate and turned to crime.
....
KDG: How big is your mortgage?
MB: £250,000. I just buried my problems, never faced up to them. I know I have breached your trust."
After the meeting police officers entered the room and arrested Mr Benjamin. Criminal charges have been laid against him in respect of frauds alleged to have been committed by him against the firm. Those charges have not yet come to trial.
The Present Claim
The firm Leonard Curtis & Co issued this claim against Mr Benjamin on 19 December 2005 and served Particulars of Claim on the same date. At that stage Mr Benjamin instructed solicitors. A defence drafted by his solicitors and bearing a statement of truth signed by Mr Benjamin himself was served.
The defence did not dispute the facts of the Autopay payments and the professional fees or double cheque payments to Mr Benjamin. However, it sought to explain them by something alleged to have been agreed with Mr Benjamin by Mr Swaden (the partner who has recently died):
"This was because in or around January 2003 Mr Swaden orally agreed with the defendant that, in addition to the monies to which reference is made at paragraph 2 of the Particulars of Claim and in the circumstances set out below, the claimant [the firm] would pay the defendant further monies so as to ensure that he received an approximate monthly fee of £6,000. It is admitted that the defendant received monies approximating to this amount for each month that he provided services to the claimant until he ceased providing such services."
The defence said that the payments which are alleged in this case by the firm to have been obtained fraudulently from it were made for "additional services" rendered by Mr Benjamin to the firm or its partners. The defence is rather vague about these alleged services, but the innuendo that comes through from time to time is that improper use was being made by the partners, or by one or more of them, of money held by or money passing through the firm, and that Mr Benjamin's "additional services" were services of facilitating and concealing the improprieties.
A reply was served by the firm. In essence it denied the allegations made in the defence and joined issue with the defence. Directions were given for exchange of witness statements. The firm served the witness statements of its witnesses. Mr Benjamin served no evidence (either of himself or anyone else). In March 2007 Mr Benjamin served notice that he would thereafter be representing himself; thus he was no longer represented by solicitors.
It is a noticeable feature that the defence had made (to some extent expressly and to some extent by innuendo) allegations of impropriety of various sorts against the firm. No evidence in support of the allegations had been given. The absence of any such evidence continued. In August 2007 the firm applied for an order that, in the absence of witness statements from Mr Benjamin, the defence should be struck out.
The matter came before Master Bragge on 25 September 2007. He did not make the order which the firm had applied for, but he made the following order:
"The defendant do by 4pm on 25 September 2007 file any witness statement of fact on which he intends to rely at trial, in the absence of which he be debarred from adducing evidence of fact at trial, save that he may rely on any matters specifically set out in his defence dated 27 January 2006."
Following the Master's order Mr Benjamin served no witness statement. So his evidence before me is limited to what is contained in the pleaded Defence. Although Mr Benjamin did not attend the hearing before the Master, he has made no suggestion to me that he was not aware of it. Similarly, he has not suggested to me that he did not know about the Master's order.
Discussion and Conclusions
I accept the firm's case as respects the Autopay payments and the double cheque payments.
There is no dispute that the payments were made. There is an issue that they were in some way authorised, apparently by Mr Swaden. Since Mr Swaden is now dead, he could not give evidence about it. The three other partners all said that they had not authorised the payments and that they had no knowledge of Mr Swaden having authorised them. They also made the point that, as Leonard Curtis & Co is a small firm, they would have expected to know about it if Mr Swaden had given his authority. Further, from their knowledge of Mr Swaden they thought it inconceivable that he would have had any truck with improprieties in the conduct of the firm's affairs or with secret payments to Mr Benjamin for facilitating improprieties. As against that powerful evidence on behalf of the firm, I must mention that Mr Benjamin has a conviction for dishonesty. In the circumstances it appears to me that I must reject his evidence and accept that of the partners.
Mr Benjamin never gave particulars of improprieties allegedly perpetrated by the partners, despite being given considerable time to rectify his omission to serve evidence which supported and substantiated the allegations in the defence. All three partners were adamant that the practice of the firm has always been conducted in a lawful, honest manner. I cannot reject that evidence on the basis of wholly unparticularised and improbable allegations by Mr Benjamin. Of course I appreciate, as does anyone with experience of litigation, that almost anything is theoretically possible, and sometimes the theoretically possible but improbable turns out to have happened. However, on the basis of what is before me in this case I cannot make any finding which would lend any support to the allegation that the firm conducted its practice in an improper and possibly even an unlawful manner.
There are further factors which support my conclusion on these aspects of the case. It is important, in my judgment, that at the confrontation meeting in Mr Goodman's office on 25 August 2005 Mr Benjamin is recorded as having admitted the Autopay fraud and the professional fees fraud. Mr Benjamin in his defence said this:
"It is expressly denied that the said typed note accurately reflects what was said during the meeting."
In his oral evidence Mr Benjamin said that he would not have said, and did not say, some of the things which he is recorded as having said and which I have quoted earlier in this judgment. I reject what Mr Benjamin says about that. I take as an example the very damaging record in the note of Mr Benjamin having said, "I was desperate and turned to crime". There is no reason which carries any conviction for why Mrs Mitchell should have recorded Mr Benjamin as having said that if he had not said it. The only possibilities to that effect are either that Mrs Mitchell made a mistake and erroneously recorded Mr Benjamin as having said something which he did not say, or that she knowingly fabricated a note and recorded Mr Benjamin as having said something which she well knew had not been said by him. Both of those possibilities are fanciful. I accept the note, reinforced as it was by the oral evidence of Mrs Mitchell and Mr Goodman, as a fair reflection of what Mr Benjamin said. In those circumstances I am all the more unwilling now to accept his assertion that the Autopay payments and the double cheque payments were payments which the firm knew all about at the time when they were made.
I hesitate to pile further points on top of those which I have already made, but for the reasons which I have given I am satisfied that Mr Benjamin deliberately prepared the cashbook in a manner which by one means or another concealed the existence of the payments to himself to all except a diligent and suspicious investigator.
For all of the foregoing reasons I accept the firm's claim in respect of the Autopay fraud (£78,000) and in respect of the professional fees or double cheques fraud (£29,400).
I turn to the alleged overcharging fraud. It will be recalled that the firm contends that Mr Benjamin overcharged it in his invoices for work done by an amount which the firm estimates at £13,200. Mr Goodman, in his witness statement, says that that is a conservative estimate.
The basis of the firm's allegation is that Mr Benjamin did the same work as Mrs Kingsman had done before him, and that he was entitled to charge the firm at the same rate of £25 per hour as that which had applied to Mrs Kingsman. However, Mr Benjamin's invoices were consistently larger than Mrs Kingsman's. Mrs Kingsman's average monthly invoice was £2,190. Mr Benjamin's average for 2003 was £2,525; for 2004, £2,683; and for 2005, £2,829. It is further pointed out that Mr Benjamin's invoices increased over time, whereas one might have expected that with greater familiarity with the firm's affairs the invoices would have diminished.
I see the force of the firm's contentions on this point. However, the firm's case is purely inference. The monthly invoices which Mr Benjamin produced to a partner during the period of the alleged fraud specifically record the number of hours which he said he had worked. No partner questioned that at the time. It is possible that Mrs Kingsman may have been able to do the firm's work in less time than was required for Mr Benjamin to do it: some people work more quickly than others. Further, I am influenced by something else which happened at the confrontation meeting in Mr Goodman's office in August 2005. I briefly alluded to this earlier, but I did not specifically quote it from the note which Mrs Mitchell prepared. I will do so now. It reads:
"KDG: I believe you have overcharged us.
MB: No, definitely not."
Thus, whereas at the confrontation meeting Mr Benjamin admitted the Autopay fraud and the professional fees fraud, he expressly and immediately denied overcharging.
In those circumstances, while I acknowledge that there may be some substance in the firm's allegations of overcharging, I am not sufficiently convinced to conclude that I should uphold this element of the claim as well as upholding the two larger element.
Conclusion and Outstanding Issues
It follows that, in my judgment, a personal claim by the firm against Mr Benjamin is a good claim to the extent of £107,400 (£78,000 for the Autopay fraud, plus £29,400 for the professional fees fraud). There are, however, other issues with which I cannot deal now and with which I do not attempt to deal now.
Mr Adair told me that the firm will wish to claim additionally for interest calculated on a compound basis. If that contention is pursued, it will need to be developed at a future hearing.
Further, and possibly more importantly, Mr Adair on behalf of the firm may wish to advance a claim -- a claim for which the ground is already laid in the Particulars of Claim -- that on principles of equitable tracing it may be possible to trace what began as a money claim through into a proprietary claim for a partial share in the beneficial ownership of Mr Benjamin's house. That could give rise to complicated arguments. They have not been developed before me, although Mr Adair helpfully indicated briefly some of the issues that might arise. In the circumstances I will say no more about it than this. I understand that the availability to the firm of a tracing remedy may depend on whether, at the time when Mr Benjamin received amounts from the firm which he ought not to have received, those payments were expected to be applied towards expenditure related to the purchase of a house for himself and his family. Although these issues were not gone into in any substance at the hearing, it appears to me to be self-evident that, because Mr Benjamin had recently raised a relatively substantial mortgage for the purchase of his house, payments received by him from Leonard Curtis & Co, whether they were properly authorised payments appropriately invoiced by him or whether they were payments which I consider to have been unauthorised and dishonestly obtained, would need to be resorted to in order to service Mr Benjamin's liabilities under the mortgage.
I will be available for further argument on other issues if it is required. Although I am retired from my former position as a full-time High Court Judge, I am still authorised to sit from time to time as a High Court Judge, and I believe that in all normal circumstances it will be possible for arrangements to be made for me to be present for any further hearings in this case if they are needed.
This judgment will necessitate a specialised form of order to encapsulate the stage that has been reached so far. I am confident that I can rely on Mr Adair's help in drawing up the appropriate order.
MR ADAIR: My Lord, I am very grateful. My Lord, for the purposes of the fraud trial (if I can call it that) is that. I have drafted a minute of order. Before I pass that up to your Lordship, it only remains, apart from the more detailed provisions, to ask your Lordship for an order for costs.
SIR ANDREW PARK: Yes.
MR ADAIR: The claim has been for fraud -- three separate allegations or schemes of fraud. Your Lordship has found that he was guilty of fraud in two of those respects. Your Lordship had certain concerns or realised that there was merit in the third but was not sufficiently convinced to give judgment on that --
SIR ANDREW PARK: Yes.
MR ADAIR: -- in my submission we have succeeded more than sufficiently to recover all our costs, particularly given the dishonesty that is associated with the conduct of the two frauds that your Lordship has found took place.
SIR ANDREW PARK: Yes.
MR ADAIR: And I would ask for those costs on an indemnity basis and I would ask for a payment on account of those costs.
SIR ANDREW PARK: Right.
MR ADAIR: If I pass up to your Lordship now a minute of order because I have included that, it may just assist your Lordship to see it.
SIR ANDREW PARK: All right. Yes.
MR ADAIR: The costs provision is the final provision at paragraph 7.
SIR ANDREW PARK: Does Mr Benjamin have this?
MR ADAIR: I am sorry, I will hand it to him.
SIR ANDREW PARK: The figure of £120,600 changes, does it not?
MR ADAIR: Of course, my Lord, yes.
SIR ANDREW PARK: Well, I am not going to say anything about compound interest.
MR ADAIR: I realise that as well, my Lord. I had anticipated arguing that today, but if your Lordship would prefer, there is no reason why that should not be put off to another day.
SIR ANDREW PARK: We can deal with it now perhaps. My inclination is to say that interest on the judgment sum -- the basic source for it is section 35A of the Supreme Court Act, and that provides for simple interest.
MR ADAIR: My Lord, the circumstances in which compound interest is given are generally where there has been a breach of trust and where that breach of trust has been dishonest or fraudulent and where the dishonest trustee has invested those monies in some way, shape or form to achieve a return on it, and the logic behind it which has been followed by the court was effectively by way of, albeit a personal order (a personal judgment debt), disgorge to a certain extent the trustee of the profits they have obtained. That is the logic, in my submission, behind the --
SIR ANDREW PARK: Is there anything in the White Book? I am starting with the gut instinct that there should be interest, but ordinary interest in accordance with the Supreme Court Act. If the Act is amended, as a lot of people are saying it should be to provide for compound interest, then that would be a desirable amendment.
MR ADAIR: Can I pass your Lordship an extract from Underhill?
SIR ANDREW PARK: Right.
MR ADAIR: I think what the White Book essentially says is that this is in the discretion of the court and that compound interest may be applied when the court indicates --
SIR ANDREW PARK: We will have to look together at that.
MR ADAIR: My Lord, the key paragraph where it deals with compound interest is over at page 869, and the last paragraph just above the sub-heading "Mixed Trust" -- on the right.
SIR ANDREW PARK: (Pause). Gilbert O'Sulivan.
MR ADAIR: Is the authority that is referred to there, my Lord, yes.
SIR ANDREW PARK: Yes.
MR ADAIR: There is not a great deal there but, my Lord, I can say from experience that this court has regularly, when I have obtained judgment, provided for compound interest where there has been dishonesty and where there has been a perceived requirement to disgorge profits, albeit that it is a personal judgment rather than a judgment in rem that has been given. The alternative --
SIR ANDREW PARK: Can we just have a look at the White Book to see if there is anything about this? (Pause) I have gone to "interest" in the index and looked for the word "compound" and I cannot find it.
MR ADAIR: It is not there. I am going to look very quickly at "rates".
SIR ANDREW PARK: I have gone there, too.
MR ADAIR: 12.60 does not assist, my Lord. It just refers to the judgment rate.
SIR ANDREW PARK: Would it do if I made just an order for interest under the Act, but giving you liberty to apply?
MR ADAIR: My Lord, given that your Lordship has decided that your Lordship will not formally give a personal judgment today, and that is why it has been put in the declaration, as your Lordship anticipated, if there had to be an election at some time, that election might be defeated by Mr Benjamin bowling up with the money. If your Lordship recalls the exchange we had yesterday, your Lordship indicated that the correct approach may well be to include it as a declaration so there is an entitlement, declaration 1 to judgment in relation to the principle sum. The claimant will be entitled to interest thereon and I could merely insert "at a rate to be assessed".
SIR ANDREW PARK: But where in the declaration have you put the point that you explained yesterday that there is an election between judgment for a principal sum --
MR ADAIR: My Lord, I have not put that because my submission is that it is not necessary at this stage. Since your Lordship has not formally for the purposes of this made any order against Mr Benjamin at this stage, only a declaration that there is at least an entitlement to a judgment in that sum, then no election is presently necessary.
SIR ANDREW PARK: I see, so you have put "the claimant is entitled to a judgment"?
MR ADAIR: Yes.
SIR ANDREW PARK: That does not say "there be judgment"?
MR ADAIR: No, and if your Lordship looks down at "and it is ordered that", your Lordship will find that there is no judgment included there.
SIR ANDREW PARK: Yes. Yes, I see.
MR ADAIR: My Lord, we are clearly entitled to the judgment, and if I was suddenly yanked on my gown and they said, "Look, let us forget all this. Just ask the judge for judgment and we will leave it at that", then your Lordship could give judgment today and that would be the end of it.
SIR ANDREW PARK: Yes.
MR ADAIR: But at present because we are entitled to it, we want to see what the facts are regarding the value of the property and perhaps pursue an argument that we are entitled to a beneficial interest or at least an equitable lien over it.
SIR ANDREW PARK: We got into this in connection with declaration 2 and the reference to interest.
MR ADAIR: Yes.
SIR ANDREW PARK: I wonder if we can tinker with that: "entitled to judgment in respect of the principal sum together with interest", and then put something like: "being interest in accordance with section 35A or at such other rate as the court may specify, the claimant having liberty to apply to the court for interest to be calculated at a different rate".
MR ADAIR: My Lord, yes.
SIR ANDREW PARK: Is that all right?
MR ADAIR: Yes, my Lord, yes, yes.
SIR ANDREW PARK: I do not really want to do it here and now.
MR ADAIR: No. My Lord, if we do have a subsequent hearing and we decide to apply to your Lordship on that occasion, then your Lordship will have the benefit of my skeleton on that and your Lordship will have time to think about it.
SIR ANDREW PARK: Yes. I am sure when you say your experience is that in this division it is commonly done, I am sure that that is right. I am afraid I do not personally recall encountering this particular point before.
MR ADAIR: yes.
SIR ANDREW PARK: I follow the point you are making, that there are fiduciary obligations here, but this is not a conventional case of a trustee in breach of trust.
MR ADAIR: No, it is not. It is not a conventional case of a properly appointed trustee. It is someone who inter-meddled with monies that did not belong to him.
SIR ANDREW PARK: Yes.
MR ADAIR: In fact, it is more serious than that because there is very serious dishonesty.
SIR ANDREW PARK: There is a degree of formalism in all of that.
MR ADAIR: My Lord, in due course I can put some submissions in writing to your Lordship.
SIR ANDREW PARK: Yes, if you wish. So there is something about interest in anyway, could we put "interest at the statutory rate or such other rate as may be determined, the claimant having liberty to apply"?
MR ADAIR: Yes.
SIR ANDREW PARK: For the rate of interest to be varied.
MR ADAIR: Yes, my Lord.
SIR ANDREW PARK: And 3, the entitlement to trace -- I would like to put something in to the effect "if the claimant wishes to have it determined".
MR ADAIR: "On the claimant's application"?
SIR ANDREW PARK: Yes, "if the claimant so applies".
MR ADAIR: Yes, "If the claimant so applies" after your name, my Lord?
SIR ANDREW PARK: How about putting "if the claimant so applies" right at the beginning of 3?
MR ADAIR: My Lord, yes.
SIR ANDREW PARK: So you would effectively getting judgment now for £107,600, ordinary statutory interest, but the loose ends that are left around are: if you want to come back for more interest you can do that.
MR ADAIR: yes.
SIR ANDREW PARK: But if you do not want more interest, you do not need to come back to say that section 35A interest is good enough.
MR ADAIR: yes.
SIR ANDREW PARK: The order will have that.
MR ADAIR: My Lord, we are probably going to have to come back and get the personal judgment, are we not? I cannot think of any way --
SIR ANDREW PARK: Well --
MR ADAIR: -- unless you declare that in the absence of such application there be judgment --
SIR ANDREW PARK: Yes, yes. I think that makes sense, does it not?
MR ADAIR: Yes.
SIR ANDREW PARK: That would have to go in the order, would it not?
MR ADAIR: Yes. The first paragraph could be: "In the absence of any further application by a specified date, there be judgment to the claimant in the sum of --"
SIR ANDREW PARK: Yes.
MR ADAIR: Or "upon the claimant giving notice to the defendant that he does not intend to pursue the tracing remedy, there be judgment"?
SIR ANDREW PARK: You will have to put something in about compound interest as well.
MR ADAIR: I think if we intend to go that route, then we will just have to suffice with 8% at the judgment rate.
SIR ANDREW PARK: Yes.
MR ADAIR: My Lord, shall I draft something and send it over to your Lordship to look at?
SIR ANDREW PARK: I think so, yes. And (2) permission to join Mrs Benjamin, that will arise only consequentially on you pursuing the tracing remedy. If you decide you are not going to pursue the tracing remedy --
MR ADAIR: Well, it is actually stated to be for the purpose of any application for possession and/or the sale of the property.
SIR ANDREW PARK: But as far as I can see, you would only be applying for possession -- well, first of all, let us take an application for possession.
MR ADAIR: yes.
SIR ANDREW PARK: An application for possession only get off the ground if you can trace into the property, does it not?
MR ADAIR: Yes, it does, other than if we go by way of a charging order and then seek application for possession. Other than that, there will have to be a tracing order.
SIR ANDREW PARK: Yes. I think (2) is consequential on an application for a charging order, is it not?
MR ADAIR: Yes, my Lord.
SIR ANDREW PARK: (3) stands though. You want that now.
MR ADAIR: Yes, my Lord, as does (4), my Lord.
SIR ANDREW PARK: Yes, but (4) will have to have some sort of cross-reference back to (1), that if there is going to be a further hearing before me on a date to be fixed --
MR ADAIR: My Lord, the fact that it is permission -- it is permissive -- means that if there is not going to be then it becomes irrelevant. So people will only incur the costs of doing that if it becomes relevant having looked, I would submit, at the mortgage statements and having taken a view.
SIR ANDREW PARK: I would still prefer (4) to be conditional on there being a further hearing.
MR ADAIR: Right, my Lord.
SIR ANDREW PARK: I have back-tracked from that. I was going to say consequential on there being -- to be a further hearing in which you pursue the tracing claim. However, the reason why I back-track on it is before you decide whether you want to pursue the tracing argument, you want to know what the property is going to be worth.
MR ADAIR: Absolutely.
SIR ANDREW PARK: It there is nothing in it you will not want to get involved in it.
MR ADAIR: My Lord, yes.
SIR ANDREW PARK: All right. If the point we are focusing on now -- in order to decide whether to pursue the tracing claim, you will need to form a view about what the property is worth. You do not need an order for that. You can go from this building this afternoon and instruct a valuer.
MR ADAIR: My Lord, I am in your hands. My submission to your Lordship is that granting us permission does not have to be conditional upon because the only implication is that we may go away, waste our monies and then change our mind. It is just giving permission. It is permissive.
SIR ANDREW PARK: (4) still needs to say "if there are any further proceedings in this matter --"
MR ADAIR: My Lord, yes.
SIR ANDREW PARK: "-- there be permission". The freezing orders, yes, it seems to me that they should continue. I see what you say about costs.
MR ADAIR: My Lord, there is a listing questionnaire in the bundle.
SIR ANDREW PARK: Yes, I remember seeing it.
MR ADAIR: And taking into account that which gives costs up to trial and what my solicitors instruct me are the costs of the trial, including my brief fee, etc, the rough approximation of the costs of to date are just under £50,000.
SIR ANDREW PARK: Yes.
MR ADAIR: In those circumstances, my Lord, I would seek what in my submission is a conservative 50% payment on account, and I would also seek the costs on an indemnity basis, given that this is fraud and dishonesty has been found by your Lordship, and your Lordship has also found the need to reject certain evidence that has been given by Mr Benjamin.
SIR ANDREW PARK: But you do not give indemnity costs against a defendant by just saying, "Look, I do not believe you".
MR ADAIR: No, it is the fraud, my Lord.
SIR ANDREW PARK: Well, first of all, coming to court and saying something which the judge does not believe does not give rise to indemnity costs. But if the case involves an allegation of fraud and the court finds it proved, is there some authority that that justifies indemnity costs? Indemnity costs arise from conduct in the proceedings, not just from putting up a defence which fails, even if it fails resoundingly.
MR ADAIR: My Lord, in my submission the costs are in the discretion of the court and the court uses indemnity costs to indicate its disapproval of conduct, whether it be in the proceedings or more generally.
SIR ANDREW PARK: Well, I am not sure about that.
MR ADAIR: 44.4 is the index in the White Book on indemnity costs.
SIR ANDREW PARK: I have more problem about the indemnity costs than I do over the interim payment.
MR ADAIR: My Lord, there is a note on 44.4.3 at page 1168 of volume 1 of the White Book.
SIR ANDREW PARK: Yes. (Pause) Do you see the page in the middle of page 1169?
MR ADAIR: Yes, my Lord.
SIR ANDREW PARK: That is what I had in mind. "When considering an application for the award of costs on the indemnity basis the court is concerned principally with the losing party's conduct of the case rather than the substantive merits of the position". If Mr Benjamin had been unreasonable and difficult over getting the case to court and had been the sort of litigant in person who is always multiplying costs, that might be so. Although I have found against Mr Benjamin, I cannot possibly criticise him for what he did so far as the case before me is concerned. He came, he has been very courteous. He certainly had not occupied much time.
MR ADAIR: My Lord, I hear what your Lordship is saying and it makes perfect sense. All I would say to your Lordship is that there are certain circumstances where defendants have -- the very nature of the wrongdoing -- behaved so badly that the court feels that the claimant ought to be more adequately compensated for the legal costs that they have incurred in having to bring the matter to court.
SIR ANDREW PARK: Yes.
MR ADAIR: Of course, the indemnity principle, although it reverses the burden of proof when the taxation happens --
SIR ANDREW PARK: In practice it makes quite a difference though -- or one assumes it does because of the amount of time with counsel trying to persuade a reluctant judge to make an order for indemnity costs --
MR ADAIR: As I understand it, what happens is that each cost is presumed to be reasonable unless it is proven to the contrary.
SIR ANDREW PARK: Yes, I know it says all that.
MR ADAIR: Well, my Lord, you have heard my submissions.
SIR ANDREW PARK: Yes. All right. My inclination at the moment on costs -- obviously I must hear what Mr Benjamin want to say on it, but it may help him to see that my inclination is that you are plainly entitled to an order for costs. I would be inclined to make them on the standard basis, not the indemnity basis, but I think I would order a payment on account. The only thing about payment on account -- and this comes up often and one never manages to come to a satisfactory conclusion about what one should do about it -- is that you do sometimes a party in the position of, for example -- of which Mr Benjamin is an example now -- saying, "Well, say whatever you like. Say I have got to pay so much on account. It is a waste of time because I cannot do it". What then?
MR ADAIR: My Lord, in some ways, in my submission, that is all the more reason to make it because where one has a situation where no payment is going to be made -- possibly inevitably -- and then the claimant or the winning party is put to the expense of having to go through the taxing process or the assessment process or a detailed assessment, preparing bills of costs, etc, etc, knowing at the end of the day, having incurred all those costs, they will not recover those costs, and the likelihood of recovering the costs at the end of the day are even more slight --
SIR ANDREW PARK: Ordering a payment on account does not remove the necessity for the taxing process.
MR ADAIR: It does not remove it, but at least it means that they are armed with a judgment and can look to enforce that judgment at an earlier stage.
SIR ANDREW PARK: Yes. The general principle is that when you make an order for costs you do make an order for payment on account.
MR ADAIR: Indeed, my Lord, yes.
SIR ANDREW PARK: I am not aware of any authority that says: Do not if to the knowledge of the court the party against whom the costs order is being made will not be able to afford it.
MR ADAIR: My Lord, that was going to be my next submission. The general rule is -- and it is a fairly strong rule -- that if a case is won, if there is an order for costs going to be made, then generally a payment on account ought to be made.
SIR ANDREW PARK: Yes.
MR ADAIR: But I am not aware of any principle that if --
SIR ANDREW PARK: Nor am I. The initial case about this -- which I imagine is still --
MR ADAIR: It is the Mars case.
SIR ANDREW PARK: It is the case called Mars, is it not?
MR ADAIR: Yes, it was Jacob J (as he then was).
SIR ANDREW PARK: Laddie J, I think.
MR ADAIR: Oh, was it?
SIR ANDREW PARK: I think so. Try 44.3.15. Mr Benjamin, this will be a complete mystery to you. I will not be able to do everything that you want, but you may be picking up that there are a number of things that Mr Adair is asking me to do against you, and I am being difficult and saying that I am not going to do them for him. He will get some of them. Let us have a look at Mars. I am at page 1162.
MR ADAIR: My Lord, at the bottom of page 1161 there is a note which appears to bear out the submission that I made to your Lordship: "Where resources of a party ordered to pay costs are limited, the court should not force the receiving party to engage in detailed assessment proceedings before receiving any money at all since this would merely require the expenditure of further monies on a process which will produce no return".
SIR ANDREW PARK:Ellison v Random House -- yes, he is a pretty well-known litigant in person. You know who it is?
MR ADAIR: It is the former MP?
SIR ANDREW PARK: I think he was, yes. He writes spy thriller under the name of Nigel West.
MR ADAIR: Yes, that is right.
SIR ANDREW PARK: All right. Shall I see if Mr Benjamin has anything he would like to say about these points?
MR ADAIR: Yes.
SIR ANDREW PARK: I do not know how much of that you have followed, Mr Benjamin. Basically you have lost the case. Now, we have been talking about what goes in the small print of the consequential order. If there is any chance of you just leaving Mr Adair and me to sort that out between us, I will take care that there is not something in there that is harmful to you in the respect where you have not had any chance to say anything about it. What about costs? I am sure you know the point here. If a case is brought against you -- or indeed by you in court -- and you lose, the general rule is that you have to pay the other side's legal costs. There are two different points here. One is: should you have to pay their costs? And the other is: how much? How much does not necessarily mean every penny they have spent. Do you want to say anything about whether you should be ordered to pay their costs at all? Normally you would have to.
THE DEFENDANT: No, I can understand having to pay them.
SIR ANDREW PARK: Okay. On one part of the case I did not find against you, but I am afraid I am inclined to say that you should pay -- you should pay not a fraction of their costs, but their costs to be determined. Substantially you have lost the whole case. The next question is how much. There is an elaborate mechanism for working that sort of thing out. I do not know if you have ever come across it. It involves the solicitors for the successful party preparing quite a full bill and eventually, if it is not agreed, it ends up before a Costs Judge who goes through things with a blue pencil, ticking them or sometimes striking out things altogether, saying that is too much and changing it. That used to be called "taxation", which is not a sensible term. It is now called "detailed assessment" -- a much better expression. That might happen in your case, although I suspect it will not. The usual thing is that if the court orders one person to pay the other's costs, as I think you are prepared to accept -- I am going to have to order you to pay Leonard Curtis & Co's costs -- the court will say the costs to be determined by detailed assessment if not agreed. But in the meantime, before the detailed assessment, you have to pay something on account. You perhaps heard Mr Adair say that his clients have probably incurred about £50,000 of costs already. He is not asking you to pay £50,000 on account, but would ask you to pay only half of it. The theory of that is that that leaves an ample safety margin for the process of the costs judge going through with his blue pencil. After he has finished, if they have incurred £50,000 of costs, after the blue pencil exercise they will not get the whole £50,000, but it is pretty sure that they will get more than the £25,0000 which they are asking for now.
Now, there is the problem -- you may tell me, and I would be delighted if you do -- that is no problem, you could pay £25,000. You may say, "I cannot". That is the most recent thing that Mr Adair and I were looking at together. The usual practice of the court is, where it is making an order for costs, also to make an order for an interim payment. Is there anything in the practice of the courts that says, "Ah, but we may not do that after all if we are dealing with a litigant who has not got any money"? I do not think that is the usual practice of the court. The usual practice is that the order will be made. If you do not have any money, that puts you a little bit at the mercy of Leonard Curtis & Co and their solicitors. But I do not think it would be right for a judge to say that I have to be sympathetic to the financial predicament in which the losing party finds himself, so I will let him off having the usual order for interim costs made against him. Unless you want to put reasons to me why I should not.
THE DEFENDANT: The only thing would be there's not a lot of period of time until 8 November.
SIR ANDREW PARK: How long would you like?
THE DEFENDANT: Six or eight weeks.
SIR ANDREW PARK: Four weeks is common.
MR ADAIR: In the absence of any date, it is fourteen days. I have provided for three weeks in that order. My Lord, I would certainly have no objection to a month.
SIR ANDREW PARK: Twenty-eight days?
MR ADAIR: Twenty-eight days.
SIR ANDREW PARK: Yes. I do not want to push it more than that. I will make an order that Mr Benjamin pays the claimant's costs -- and all of them -- on the standard basis, to be determined by detailed assessment if not agreed, with an interim payment of £25,000 within 28 days.
MR ADAIR: My Lord, yes, which I calculate to be 15 November.
SIR ANDREW PARK: Yes.
MR ADAIR: I am grateful. My Lord, I think that concludes everything. I had better just check with your Lordship that I fully understand the shape of the order that your Lordship wants. I have actually written down the amendments to the various declarations.
SIR ANDREW PARK: Do you want to do it an e-mail it through to Peter Smith J's clerk?
MR ADAIR: Yes.
SIR ANDREW PARK: I think Mr Benjamin will be content with this.
MR ADAIR: Yes.
SIR ANDREW PARK: If there are points, I think we can iron them out, the two of us, on the telephone.
MR ADAIR: Yes, my Lord.
SIR ANDREW PARK: That would mean, Mr Benjamin, that I might be speaking to Mr Adair about the small print of the order without you hearing what we were saying. I think you can trust us not to do anything improper.
THE DEFENDANT: Of course.
MR ADAIR: My Lord, I am grateful. My Lord, just on the housekeeping on that, it is likely that I will be out of chambers all day tomorrow.
SIR ANDREW PARK: I am here next week.
MR ADAIR: Then that is not a problem.
SIR ANDREW PARK: Yes.
MR ADAIR: I will be here on Friday as well.
SIR ANDREW PARK: I am here on Friday. If for any reason it runs over after the end of next week, I am not in court but I am at home and that is not far away. I am easily contactable.
Mr Benjamin, there is one other thing to be said. I do not know whether you would be wanting to explore the possibility of appealing against what I have decided against you? If you do, the route is that you would need permission to appeal. You can get that in two ways. You can apply to me for it, and I may or may not give it to you. If you do not apply to me, or if you apply to me and I say no, you can apply to the Court of Appeal for permission. So if you want to make an application to me for permission, you should do it now. I had better warn you that I would be very disinclined to say, "Yes, you can have permission". But I would be failing in my duty to you, you being a litigant in person, if I did not tell you this now.
THE DEFENDANT: Thank you.
SIR ANDREW PARK: Do you want to make an application?
THE DEFENDANT: No.
SIR ANDREW PARK: All right. That is very fair. I think that is everything.
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